Many manufacturers, such as automobile manufacturers, operate multiple assembly plants that require component parts from multiple suppliers. For each assembly plant, these parts from various suppliers may be received at the assembly plant directly from the supplier or they may be received, unloaded, and staged at a consolidation center for delivery to the assembly plants. Whether parts are transported to assembly plants directly or indirectly from the suppliers, the associated transportation costs can be substantial. For a large automobile manufacturer, transportation costs for supplies may exceed $1 B annually.
Parts that are delivered to a manufacturer's assembly plants are typically loaded and transported on tractor-trailers. Ideally, the ordering and manufacturing of parts is aligned with the manufacturer's production needs so that the number of parts maintained in an inventory is minimized. In many manufacturing operations, supplies and/or parts deliveries are aligned with production so that required parts arrive at the assembly plants at a pre-determined time in advance of production. In other words, the parts that may be received at the assembly plant one day are used in the next day's production. Additionally, transportation and delivery of parts also ideally coincides with production needs such that trailers delivering parts are fully loaded when they leave the supplier's or consolidation facility. To synchronize supply chain orders with production, the manufacturer creates a production schedule and corresponding purchase schedule which provides details of the production sequence in part quantities. Supplier production and deliveries are generated from the purchase and delivery schedules so that each supplier knows which parts are needed and when they are needed.
For a variety of reasons, actual daily production at a manufacturing facility often varies from planned daily production. On some days, actual production may exceed planned production because of increased operating efficiencies, less downtime than expected, build ahead for unplanned events, etc. On other days, actual production may fail to meet planned production because of decreased operating efficiencies, planned downtime exceeding estimated time limits, unscheduled downtime, etc. Other factors that contribute to variances are production sequence changes, inventory discrepancies, and bill of material changes. When actual production varies from planned production, the availability of supplies and/or parts for the next day's production also varies. On days when actual production is less than planned production, the availability of parts for the next day's production typically exceeds planned level because additional parts are delivered and in addition, a portion of the inventory from the prior day's production remain on hand. On days when actual production is greater than planned production, the manufacturer may require the delivery of additional supplies and/or parts to meet the next day's production because the pre-determined receiving advance is no longer maintained.
Deviations in actual production that impact supply and/or part availability and that impact part deliveries further impact transportation costs. When changes to a previous delivery schedule are required, the manufacturer may be required to dispatch extra trailers that are not completely full. When the manufacturer has a sufficient on-hand inventory to meet the day's production needs, trailers may be idle until they are needed to deliver more supplies. Whether partially filled trailers are dispatched or trailers are idle, trailer capacity is underutilized. The resulting logistical instability increases costs due to inbound part as well as outbound container volume changes.
Deviations in actual production can further impact supply chain ordering. Because purchase and delivery schedules are aligned with production schedules, suppliers are notified of manufacturer's delivery needs days in advance and forecast needs only weeks in advance of production. Each supplier schedule corresponds to the manufacturer's overall production schedule. A manufacturer's computerized ordering systems is connected to inventory management systems as well as production schedule systems and is designed to balance production demand with on-hand inventory and current supply orders so that the available inventory meets, but does not exceed, production demand. When an imbalance is detected and an immediate supplier schedule change (a variance) is required, the computerized system automatically generates supply order change recommendations based on the overages or shortages it identifies. Buyers for the manufacturer investigate the causes of variances and decide whether to accept the recommended new orders or to keep current orders.
Deviations in actual production impact supply chain orders as the computerized ordering system responds to the variances by recommending order quantities based on production needs and inventory levels that fluctuate according to actual production. Order recommendations are communicated to buyers that then decide whether to order the recommended quantity or to rely on the original order to meet future production needs. Labor costs for the manufacturer increase as each buyer is faced with numerous recommendations from the computerized ordering system and is required to make decisions based on the recommendations. If recommendations are followed, the computerized ordering system may effectively establish a pattern of over ordering followed by excessive cutting. During periods of over ordering, warehouse space is depleted and storage costs increase. For supplies that are delivered using returnable containers, over ordering can also result in returnable container shortages. Excessive cutting could lead to supply/part shortages and result in production slowdowns due to unavailability of supplies or parts.
In addition to impacting buying decisions, variances in actual production may further impact supplier operations. If a buyer follows a computerized ordering system recommendation and submits a new order to a supplier for a quantity that is different than the quantity originally indicated in the supplier's schedule, the supplier must respond to the change in quantity. If the order calls for a quantity greater than originally anticipated, the supplier may need to increase production to meet the manufacturer's needs. If the order calls for a quantity less than originally anticipated, the supplier may need to decrease production. The changes in order quantities, therefore, impact the supplier's operations and require the supplier to be able to adjust its production to fluctuations. Costs associated with adjusting production may be passed on to the manufacturer.
Deviations between planned and actual production quantities impact a manufacturer's supply order costs in various ways. They result in increased transportation costs for supplies and increased labor costs as buyers are required to analyze purchasing recommendations. During periods of over ordering, inventory, warehousing, and returnable container costs increase. Excessive cutting may lead to inventory shortages which also impact costs. Finally, supplier apprehension increases as suppliers are required to adjust production to variances in order quantities. There is a need for a system and method for reducing the impact of variances between planned and actual production on a manufacturer's supply chain. There is a need for a system and method for managing supply orders so that quantity variances in supply orders are minimized. There is a need for a system and method for reducing the number of order changes communicated to suppliers so that supplier purchase and delivery may remain stable and more closely aligned with the manufacturer's production.